Question

If traceable fix cost go when a segment or portion for a segment disappears. How come that's not taken in account according to the problem below:
In other terms why is the solution not (110000)+250000+45000= 185000
*250000 represents saving in cost from dropping West Region
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Diego Company manufactures one product that is sold for $80 per unit in two geographic regions -the East and West regions. The following information pertains to the company's first year of operations in which it produced 40,000 units and sold 35,000 units Variable costs per unit: Manufacturing Direct materials Direct labor $24 $14 Variable manufacturing overhead Variable selling and administrative $2 $4 Flxec costs per year: Fixed manufacturing overhead Fixed seling and edmiristrative expense.. $800,000 $496,000 The company sold 25.000 units in the East region and 10.000 units in the West region. It determined that $250,000 of its fixed selling and administrative expense is traceable to the West region. $150,000 is traceable to the East region, and the remaining $96,000 is a common fixed expense. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product. Required: Answer each question independently based on the onginal data unless instructed otherwise. You do not need to prepare a segmented income statement until question 13 14. Diego is considering eliminating the West region because an internally generated report suggests the region's total gross margin in the first year of operations was $50,000 less than its traceable fixed selling and administrative expenses Diego believes that if it drops the West region. the East region's sales will grow by 5 % in Year 2 Using the contribution approach for analyzing segment profitability and assuming all else remains constant in Year 2, what would be the profit impact of dropping the West region in Year 2? Calculation of changes in profit (if west region is dropped): It is given that the forgone segment margin of west region is S110.000 and calculated additional contribution margin is $45.000. Now, calculate the changes in profit Forgone segment margin of west region +Additional contribution margin Changes in profit = (S110,000)+ S45,000 (S65,000) (S65,000) Hence, the calculated change in profit is

Answer 1

East 25000 units West Addition $250 units 10000 units East 364 units 900000 360000 45000 Traccable sap Expense 150000 250000 - Calready deducted) from 25000 units - 750000 110000 450000 The traccable selling & Distribution was already deducted from 900000, ici as it is fixed cost even if your produce addition 1250 units the Fixed cost does not change. so will not add 250000 So change in profit = (65000)